As deflation eases and unemployment falls, has the Eurozone finally turned a corner?

The tailwinds of cheap oil, an undervalued euro and aggressive ECB monetary easing have already propelled business, investor and consumer confidence indices across the Eurozone to multi-year highs, even though this is only beginning to filter through to the real economy. Above-trend growth is now baked into the cake from the second half of the year onwards. The economic outlook for the Eurozone has not been this good for a long time. Tail risks, such as a Grexit or Putin’s actions, could still delay, but probably not derail, the recovery. But this is more than a cyclical uptick. Where labour markets have been reformed and budget deficits slashed, a strong and sustainable upswing has taken hold. Germany and Spain are competing for the top spot, but even Italy, which finally adopted serious labour market reforms in December last year, is showing signs of life. That leaves reform laggards such as France looking like outliers, not the norm.

Danae Kyriakopoulou is senior economist at the CEBR, says No

With consumer confidence close to a four-year high and average inflation back closer to zero, it is tempting to think the Eurozone has turned a corner. The ECB’s quantitative easing has certainly played a big part in this, and continued loose monetary policy, a weak euro, and low oil prices should all support the recovery. But it’s not exactly an achievement to see an improvement from such a low base. The important question is how sustainable this improvement is. Unfortunately, the Eurozone mission is far from accomplished, and without efforts to improve economic competitiveness and reverse the trend of under-investment in the region, productivity will remain weak and the recovery will be short-lived. So while recent data has been encouraging, this is not the time to rest on any QE laurels. The recovery remains fragile, and failure to prioritise and successfully implement structural reforms risks keeping the Eurozone in a Japan-style prolonged stagnation.